Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $0

Question

                    Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of $0.85 out of annual earnings per share of $3.25. Currently, Rubenstein Bros.'                     stock is selling for $13.00 per share. Adhering to the company's target capital structure, the firm has $14 million in assets, of which 35% is funded by debt.                     Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 16%, which is expected to                     continue this year and into the foreseeable future.                 

                                     I got part A correct and I am having trouble getting the rest. Thanks

Explanation / Answer

1)Growth rate=Retention ratio*ROE

=0.7385*.16

=11.81%

2)Required return=(D1/Po)+g

Re=(0.85*1.1181/13)+0.1181

=19.12%

3)New growth rate shall be=(3.25-1.70)/3.25*19.12%

=9.11%

4)Total amount of stock dividend=0.85*14 million*65%/13

=$595000

Stock dividend is =0.595/(14*.65)*100

=6.54%

5)New shares to be issued=595000/13

=45769.23 shares

6)EPS Shall be equal to=2275000/745769.23

=3.05 per share

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